Large Cap Natural Gas: An Investment in the Ultimate Alternative Energy

Includes: APC, DVN, ECA, EOG, XTO
by: Kurt Wulff

Five buy-recommended, large cap, independent natural gas producers, Anadarko Petroleum (NYSE:APC), Devon Energy (NYSE:DVN), Encana (NYSE:ECA), EOG Resources (NYSE:EOG) and XTO Energy (XTO) account for half of the North American portion of the 43% concentration of natural gas in the illustrative McDep Energy Portfolio. Valuation is attractive at a low median McDep Ratio of 0.82.

Present Value, the denominator of the McDep Ratio, is supported by the relationship of reserve life, Adjusted Reserves/Prod, and cash flow multiple, PV/Ebitda. We believe the long-term timing is good for buying in today’s volatile market. Natural gas is the ultimate alternative energy.

When the sun doesn’t shine and the wind doesn’t blow, we need natural gas. Until new plants are approved and built for clean coal and nuclear, we need natural gas. If we want to subsidize agriculture, we need natural gas to convert food crops to energy. To supplement oil that faces increasingly short supply, we need natural gas. Finally, if hydrogen is going to be the last clean fuel, it will likely be created from natural gas.

Originally published on January 29, 2008.